News Releases

High carbon price will hit households and business hard

7 July 2008

Catherine Beard, executive director of the Greenhouse Policy Coalition, representing the energy intensive sector on climate change issues, says with the price of carbon hitting a two year high, new analysis shows householders and businesses can expect a much bigger bill from the proposed emissions trading scheme than the government would like to admit.

“Based on today’s carbon market prices, householders will have to find nearly an extra billion dollars per annum as a result of the emissions trading scheme.”

“Analysis shows (see attached) that in the seven months since the emissions trading Bill was tabled in Parliament in late 2007, carbon prices have increased from the much talked about (by Hon David Parker) $15/tonne of CO2, to CER’s now trading at $40.00 plus/tonne.”

“This means a representative household could now expect to pay an extra $510 per annum for the increases in petrol and electricity prices as a result of carbon charges, or an extra $614 per year if the increase in the cost for biofuels is added in. Catherine Beard says this is a staggering 221% increase in the cost of this legislation from 7 months ago, and the upward trend in the carbon markets looks set to continue.”

“In the commercial sector, which is dominated by small business in New Zealand with typically less than 5 employees, they can expect a price increase of over $3,000 per annum for gas and electricity, up from $1,200 per annum had the price remained at the much talked of $15/tonne CO2.”

“A larger commercial business, such as a supermarket, can now expect price increases as a result of the emissions trading scheme in the region of $60,000 dollars per annum (up from $23,000 per annum at $15/tonne) which will no doubt be passed on to consumers if the businesses of this size can not absorb the increase in costs and remain profitable.”

Catherine Beard says carbon analysts are talking about the CO2 market looking more and more like the crude oil market, with CO2 prices closely following oil prices, with added volatility.

Catherine Beard says the Greenhouse Policy Coalition has long been advocating the need for a price safety valve on the price of carbon, until such time as the international carbon market matures and reflects least cost emissions reductions, rather than the political decisions made in Europe.

“Australian economist Ross Garnaut, who has just presented a report on emissions trading for the Australian government, has recognized the risk of a high and volatile price of carbon in the transition to a global carbon market and has included an option of a low fixed carbon charge in the first two years of an emissions trading scheme in Australia.”

“The current emissions trading bill before Parliament needs some significant changes to prevent it damaging the New Zealand economy, and we urge all MP’s to ensure that Parliament takes the time to get this legislation right before it is passed into law.”

Ends

Note to Editors: The government has relied on advice that there would be plenty of low priced carbon units available on the international carbon markets and that this would keep the price of carbon low. They were banking on a surplus of Russian AAU’s coming on to the market which would depress the carbon prices. This does not look realistic for a number of reasons, but even if they were available there have been no trades of AAU’s amongst businesses (they have been government to government trades so far and it is questionable whether business can even technically buy them). In addition, changes made to the emissions trading Bill mean AAU’s are now restricted to 2008-12 trading period.

CER’s from the Kyoto Protocol’s Clean Development Mechanism (CDM) are supposed to be the other source of reasonably priced emission units, and they are generated by undertaking projects in developing countries to reduce emissions. However to access the more reasonably priced CER’s, companies would have had to undertake projects in developing countries, and with this comes project risk, including the risk that the project fails to deliver the amount of units promised or within the timeframe required. In addition, the CDM projects have to be approved by a UN body to ensure their environmental integrity, which adds a bureaucratic time delay/transaction cost risk aspect as well. A secondary market has emerged for the sale of CER’s, which is where carbon traders/brokers take the project risk and buy up units to on-sell at a premium, because the units are guaranteed delivery. These are the units that most New Zealand businesses will be forced to buy, because in a mandatory market with significant penalties for non-compliance, companies will need guaranteed delivery of carbon units. It is not predicted that there will by many New Zealand units for sale, as foresters are likely to hold onto their allocation of NZU’s to cover off their own future liability in the event the trees are cut down.

Secondary market CER’s are currently trading at around NZ$40/tonne and they are trading at about NZ$10 less than the EU ETS units, EUA’s, which are currently priced at $54.00/tonne CO2.